Singapore-based Oversea-Chinese Banking Corporation (OCBC) has emerged the winner in an auction for ING's Asian private banking business, with a bid of $1.46 billion.
The announcement yesterday marks the end of a sales process which began over the summer and saw players like HSBC and DBS Singapore in competition. The acquisition was keenly contested as opportunities to inorganically grow private banking portfolios in Asia are rare.
OCBC is buying a business with 150 relationship managers, more than 5,000 clients and assets under management (AUM) of $15.8 billion. ING's private banking clients in the region span Southeast Asia, India, Greater China, Japan and Korea. They are serviced through marketing desks in Singapore and Hong Kong, and supported by relationship offices in Manila, Seoul and Dubai. OCBC said the ING business is complementary to its existing private banking operations with limited overlap. ING in Asia gets less than 20% of its AUM from Southeast Asia (excluding the Philippines), while 90% of OCBC's existing private banking business is derived from Southeast Asia.
The acquisition price of $1.46 billion translates into 3.4% of assets under management. It also represents 1.6 times the net asset value of ING private banking on August 31 and 17 times its normalised 2008 earnings. OCBC was advised by Goldman Sachs with legal advice from Freshfields.
ING has done well with its Asia business, growing AUM at a compound annual growth rate (CAGR) of 24% between December 2002 and August 2009. OCBC said "the quality and resilience of [the] franchise and clientele was demonstrated during the current global financial crisis" when ING private banking in Asia saw a net inflow of $1.8 billion in AUM.
For ING, the divestment follows the sale of its Australia wealth management business to its joint venture partner, the Australia and New Zealand Banking Group, and the sale of its Swiss private banking business to Julius Baer. ING was advised on the sale of its Asia and Swiss private banking businesses by J.P. Morgan.
The acquisition will see OCBC treble its AUM to $23 billion. The bank termed the move "a transformational step" in its private banking business. And precisely this fact may have been responsible for OCBC emerging as the winner. Media reported a few days ago that DBS had decided not to bid as it couldn't justify paying the price ING expected for the business. DBS has an AUM of around S$30 billion ($22 billion).
Similarly, for HSBC, which had $433 billion of AUM globally as of December 31, the deal was always going to be small and this may have played a role in the UK-listed bank deciding not to bid too aggressively. HSBC has taken a conservative approach to acquisitions recently. Earlier this year the bank opted out of an auction for select Royal Bank of Scotland assets in Asia, which was won by ANZ. However, HSBC is said to be back at the table looking at the India and China assets which ANZ did not buy.
OCBC said it will be "well placed to capture the opportunities provided by the rapid growth of Asia's wealth management industry and Singapore's unique position as a major private banking hub, attracting wealth from both within and outside Asia".
The Singapore bank said it intends to operate ING's Asian private banking business as a wholly owned subsidiary and will integrate its own private banking business into the subsidiary. OCBC said a decision on re-branding has not yet been finalised.
OCBC will fund the deal from existing resources. After the deal, its tier-1 capital ratio, based on June 2009 figures, will fall to 13.9%. Fitch yesterday affirmed OCBC's AA- rating, saying the bank continues to have "solid loss absorption capacity to negotiate the difficult economic environment".
OCBC has assets of S$183 billion and a network of more than 480 branches and representative offices in 15 countries across the Asia-Pacific, the UK and the US.
Singapore and Malaysia accounted for 87% of OCBC's total assets at the end of the first half of calendar 2009. The bank has a strategy to become a top three bank for wealth management in the combined Singapore and Malaysia market by 2010. "With the global financial crisis having reshaped the competitive landscape, OCBC is taking advantage of its strong balance sheet and capital position to acquire a high-quality, Singapore-based franchise, managed largely by Asians, to build a leading Asian private bank," the bank said.